Viewpoint: Bullish
The ASX200 edged higher yesterday even as more stocks retreated under the weight of rising bond yields and nervous US futures – more on the former later. The local market experienced pronounced sector rotation throughout the day as bond markets heavily influenced investors, I have seen a few overnight moves akin to this in 2021 but arguably none as dramatic intra-day:
We mentioned aluminum earlier in the commodities section and importantly MM believes in a number of cases the respective benefitting stocks are still too cheap. We have discussed crude stocks a number of times in recent weeks but Alcoa (AA US) illustrated the point that it’s not isolated to the energy complex – on Friday night it surged over 15% following…
Bitcoin has been signalling it’s time for “risk on” to re-emerge for over 3-weeks and this leading indicator for both speculation and investment liquidity is again feeling smack on the money – remember MM has repeatedly described the current bull market as a liquidity as opposed to a deep value driven advance.
Last week saw Aluminum again explode to fresh post GFC highs, prices have more than doubled since their early 2020 low but at this stage there’s not any signs of consolidation, of course it will happen as with crude oil but prices could easily rally another 10, 20 or 30% higher before they take a rest, or top out.
Crude oil and many other commodities continue to squeeze higher, it’s easy to say that’s enough lets take profit but the next week they’ve continued to grind out another fresh 2021 high and we all know human psychology makes it very hard to buy a market at a higher price than you’ve just sold it. As much as possible we like to keep things simple at MM i.e. keep it simple stupid (KISS):
The “Aussie” has started to regain its mojo over recent weeks enjoying a broad-based resurgence in the commodities market although the influential iron ore market is tempering the enthusiasm for the local currency i.e. the Canadian Dollar (referred to by professional traders as the Loonie) has bounced noticeably harder due to its lack of dependency on the bulk commodity.
The pivotal $US continues to tread water illustrating investors uncertainty around exactly what comes next, its lack of strength even as US bond yields rise is encouraging for our bearish view but obviously there is no confirmation at this stage. A weak greenback would provide a very useful tailwind for the likes of gold and silver.
No change, local bond yields have continued to rise from their late August low, the RBA may be sticking to its guns to hold the cash rate at 0.1% through until 2024 but markets continue to believe they will hike sooner. The shorter-term bonds are leading the way with the Australian 3-year yields powering to fresh multi-month highs last week, around 6x…
Last week saw the UK’s FTSE break to fresh 2021 highs even while their yields are trading at 2-year highs, another stock market telling us higher rates are ok at the moment. The local ASX is highly correlated to the FTSE due to its similar respective sector weightings hence we regard this bullish move as another great read through for ASX.
US stocks are bouncing nicely with the “Big Tech” names finally finding some love last week, we remain bullish the NASDAQ initially targeting another assault on the psychological 16,000 area, or 5-7% higher i.e. the trends up and at this stage there’s no standout reason to be believe the latest 8.3% dip by the tech names wasn’t another opportunity to simply “buy the dip” – the successful practice adopted by many over recent years.
